Congress takes break, Democrats look to restart

Key Takeaways

• Fed meets this week, Tuesday and Wednesday, final opportunity to telegraph policy change in March. Chair Powell should be confirmed by Senate prior to March meeting.
• Democratic agenda in tatters with death of voting rights bills and Biden’s Build Back Better $1.75T legislation.  What next?
• February 18 deadline for funding federal government quickly approaching, talks underway to see if new funding and new priorities can be agreed to.
• Bipartisan talks to reform the Electoral Count Act  (ECA) of 1887 gain some momentum.

The Fed meets this week but it is not expected that they will take any rate action this meeting.  However, there will be great anticipation of Powell’s remarks, and if past is prologue he should continue to telegraph a rate action at the March meeting.  Last week there was some talk of the Fed shocking the system with a 50bps increase rather than 25bps; if there is any validity to such talk this week’s meeting would be the time to put markets on notice.

The Chair also has to keep in mind that between this week’s meeting and the March action he is likely to have a confirmation vote in the Senate.  Powell did well during the Senate Banking Committee hearing, and the general expectation is that he will be confirmed for a second term in February; but in a 24 hour news cycle any slip could cause headaches for confirmation.  Powell has gotten stronger and stronger at handling the post-meeting news meetings and expect the same this week.

Democratic agenda

Democrats in Congress are looking at some seriously bad poll numbers in their effort to retain the majority after this year’s elections.  The math doesn’t look good. Since the Civil War there have been 40 off-year elections; and the party in the White House has lost seats in 37 of the 40 races.  Today the Democrats in the House are sitting on a tiny five seat majority, so even a small number of loses would give House control to the Republicans.  Most Democrats believe that the only chance they have of retaining control of the House is to deliver big programs that make a difference in voters’ lives.  That game plan is endangered by the death in the Senate of the Build Back Better (BBB) package.

Last week President Biden for the first time broached the idea breaking up the different provisions into multiple bills, but that has one fundamental flaw – this package was being considered under Budget Reconciliation rules to avoid the threat of a Senate filibuster.  Without the Reconciliation rules it would be impossible to pass the big proposals.  The idea that is picking up some support is to basically give Joe Manchin the drafting pen and see what he would accept, and then pass it. This may require some humble pie from House progressives – but as the old saying goes – compared to what? Senator Manchin sits in the seat of West Virginia legend Senator Robert Byrd.  Senator Byrd was a WV institution for the money he brought back to his poor state and Senator Manchin wants to follow in Byrd’s footsteps.  Programs such as childcare, universal Pre-K, and lower prices for prescription drugs might be crafted in such a way as to get Senator Manchin’s support.  While far from assuring Democratic victories in November with no tangible wins this year, even a remote chance of Democrats keeping the House seems out of reach.  A very big incentive to find a deal.

FY 2022 Budget

While passing a much revised BBB is likely a topic for the spring; Congress has an important spending mission in the next few weeks.  The US Government has been operating under a Continuing Resolution (CR) since the beginning of the current fiscal year on October 1, 2021.  Republicans would like to see more spending and new priorities in the Department of Defense, and Democrats want to boost domestic spending; hence the possibility of a deal before the current CR expires on February 18.  The so-called “four corners” of Senators and Representatives that run the Appropriations Committees have been meeting and looking for a deal.  Most experts believe that the DoD is desperately in need of new spending to keep up with changing global demands especially with Russian and China.  But realistically even Democrats who support more money for DoD know that to get through a Democratic Congress more spending needs to be allocated to domestic programs.

In the coming few weeks watch for talk of an Omnibus Spending Bill; this is a vehicle that can be used for changing spending and priorities in multiple areas of government; it can be as small or large as the legislators want.  Departments not covered in the Omnibus can be funded until the end of the fiscal year via a yearlong CR.   Needs for new spending at Commerce or Agriculture may be less pressing than DoD and HHS, and this strategy could accommodate the most pressing needs. This deal could be done in the first weeks of February.

Elections

When Senators Manchin and Sinema joined all 50 Republicans in maintaining the filibuster rules it became impossible to approve a Democratic voting rights bill; though as I have written the obscure Electoral Count Act (ECA) of 1887 is getting some serious, behind the scenes, attention. It is the ECA that allows just one member of the House and one Senator to initiate an official objection of a state’s vote count; there is widespread agreement that the number needs to be substantially increased.  After the efforts of President Trump to get VP Pence to throw-out electoral college results, there is thought being given to clarify the ceremonial role of the VP in counting votes on January 6.  This could be an emerging issue this summer.